WILKES-BARRE ‚?? It will take the city at least 15 years to fully recoup the cost of a $6.38 million bond issue that‚??s earmarked to fund efficiency improvements in infrastructures, and there‚??s no guarantee the full savings will be achieved, according to the project contract and bond documents.
The bonds, which are to be paid back over 13 years starting in 2012, will cost a total of $6.38 million in principal and interest as of 2025, according to figures supplied by the city.
The city won‚??t achieve that much in energy savings until at least 2026, according to projections contained in the contract with Johnson Controls.
The total energy savings as of 2026 have been estimated to be $6.51 million, but only a portion of that figure -- $2.55 million, is guaranteed under the contract.
The remaining $3.8 million consists of operational savings the city has estimated it will see, but that Johnson Controls does not guarantee will be achieved.
Council on Tuesday approved the bond issue to fund the project based on assurances by Mayor Tom Leighton‚??s administration that the contract will save millions of dollars.
The project calls for upgrades to numerous structures throughout the city, including the installation of new heating/air conditioning systems, installation of more efficient street lighting fixtures and toilets and a new roof on the Department of Public Works building.
The structure of the debt service on bond repayments, which average around $124,000 each of first eight years, ensures the savings will be achieved in those years since the contract guarantees savings of $158,000 to $178,000 each year.
But it will become increasingly difficult to cover the debt service in later years as the cost of the debt service escalates to more than $1 million per year in years nine through 13. The contract, meanwhile, guarantees savings of $189,000 to $204,000 in those years.
Leighton has touted the project as a means to pay for several expensive capital projects, including installation of a new heating/air condition system at police headquarters, that otherwise would have to come from the general fund budget.
That‚??s one of the key benefits of energy performance contracts that have made them increasingly popular with municipalities nationwide, according to the Energy Services Coalition, a non-profit organization that works to increase energy efficiency.
The contracts also are popular because they typically involve low risk since the contract holder guarantees the savings achieved will cover the total cost of the project.
However, Wilkes-Barre‚??s contract does not have that guarantee, meaning there is some risk involved.
The city‚??s contract also differs in other ways from energy performance contracts signed by other cities, including one the city of York signed with Johnson Controls last year.
The York project, approved in September 2011, consists of upgrades to lighting, heating and other infrastructure improvements. The total cost of project, which will be $2.4 million with interest factored in, is guaranteed under their contract with Johnson Controls.
The contract, a copy of which was obtained by The Times Leader Wednesday, shows York is guaranteed to end up with a net surplus of $55,512 at the end of the 15-year bond.
Wilkes-Barre is guaranteed only to get $3.9 million in savings after 20 years, which would not cover the total $6.38 million cost.
The York contract is also more detailed, providing more specific information on the obligations of Johnson Controls, and contains additional safeguards for the city that are not included in the Wilkes-Barre contract.
The contract, for instance, requires Johnson Controls to pay York the difference if energy savings don‚??t meet projections. Wilkes-Barre‚??s contracts contains a provision that would allow the company to avoid payment by applying the shortfall to future years, or provide other services in lieu of payment.
York awarded the contract to Johnson Controls after seeking requests for proposals from several companies.
Wilkes-Barre did not solicit proposals from any other vendors, according to Butch Frati, operations director.
Frati said the city did not believe it needed to seek other proposals because it has always been satisfied with the company‚??s performance in other jobs for the city.